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Every week, we find ourselves having a conversation about cost optimization with a wide variety of enterprises. In larger companies, we often talk to folks in the business unit that most people traditionally refer to as Information Technology (IT). These meetings usually include discussions about the centralization vs. decentralization of IT and oftentimes they don’t realize it, as we are discussing cloud and how it’s built, run, and managed in the organization. 

Enterprises traditionally organized their IT team as a single department under the leadership of the CIO. The IT team works across organizational departments and supports the enterprise to meet various tooling and project needs requested by other business units or the executive team. Although there are significant efficiencies from this type of approach, there are some risks that can affect the entire organization – in particular, one that seems to stem from the “need for speed” (agility). The LOB depends on IT to deliver services, hardware, software, and other “tools,” but this is not always done quickly and efficiently, mostly due to internal processes.

Benefits of Centralized IT Structures

The benefits of this type of organizational structure are often associated with increased purchasing power, improved information flow between IT team members, skilled hiring efficiencies, and a watchful view of the enterprise’s technical infrastructure from both an operational network and security perspective. Let’s dig into these in a bit more detail.  

• Lowered expenses and increased purchasing power: The centralized environment will always provide a business with more buying power at a lower cost by combining all of the needs of the business into a centralized buying pool.
• Improved productivity for IT staff: IT teams are like any other team – they thrive with collaboration and mutual understanding and respect for each other’s skillsets. It also makes installations and technical resolution(s) easier as you’re addressing a centralized resource.
• Enterprise-wide information dissemination: The centralized organization will build its network from the center out – LOBs will typically share the same networked resources – such as an ERP or CRM. This avoids the dangers of siloed information that could be critical to another LOB, but without access, there’s no visibility into the information that is available.

Despite the benefits stated above, a centralized team has several limitations and challenges. One of those challenges with the greatest enterprise-wide exposure is how best to prioritize project requests from each of the LOBs. Enter decentralization and cloud: IaaS, PaaS, and SaaS.

Decentralization is a type of organizational structure in which daily operations and decision-making responsibilities are delegated by top management to middle- and lower-level managers and their respective business units. This frees up top management to focus more on major decisions. For a small business, growth may create the need to decentralize to continue efficient operations. Decentralization offers several advantages and is a practical approach when different departments or business units in a company have different IT needs and strategies.

Benefits of Decentralized IT Structures

• The ability to tailor IT selection and configuration: When individual departments have IT decision-making power, they can choose and configure IT resources based on their own specific needs. For example, each department has its own servers optimized to run its required applications.
• More fail-safes and organizational redundancy: Decentralizing makes servers and applications more resilient – and it can do the same for IT networks too. If each department maintains its own server, one can function as a backup server in case another server fails. (Of course, this type of redundancy would need to be properly configured in advance.)
• Respond faster to new IT trends: Since departments in decentralized organizations can make independent decisions, it’s easier for them to take advantage of new technology in the cloud.

One drawback of decentralized IT structures is that this model often leads to information silos – collections of data and information that cannot be easily shared across departments. Centralized IT structures help prevent these silos, leading to better knowledge-sharing and cooperation between departments. For example, using one centrally managed CRM system makes it possible for any employee in a company to access customer information from anywhere – think SalesForce.

The Reality Is Hybrid IT

As we see above and in real life, there are many reasons an organization might be tempted to move toward or away from a centralized IT organizational structure, but in practice many companies practice a hybrid model – some IT systems like your CRM and ChatOps are centralized, while others like your Cloud Provider and Orchestration tool may be decentralized (by business unit). The top reasons for this hybrid model that come to mind are technical agility and the availability of tools through SaaS, IaaS, and PaaS providers – IT no longer needs to build every solution and tool for you. And decentralized IT organizational structures are typically best for companies that rely on technical agility to remain competitive. These include newer, smaller companies (e.g., startups), and organizations that need to respond quickly to new IT developments (e.g., software and hardware companies or app developers). And, for larger companies that want to bring that mentality and model to their business, here is a great example: Capital One, a bank wanting to be a technology company. 

What are your thoughts on the centralization vs. decentralization of IT?